Pensioners are set to benefit from a significant reduction in the amount of tax they pay following new measures introduced by the government. These changes mean that pension income will now be largely exempt from tax, while other income earned by pensioners will be taxed separately and more fairly.

Previously, pensioners who received both a pension and additional income often ended up paying higher tax rates because all their earnings were grouped together. This system meant that many were pushed into higher tax brackets, with some paying as much as 25% tax.

Under the new system, pension income is treated differently from other sources of income. It is now effectively tax free, with pensioners not required to pay tax on income up to twice the maximum state pension. This applies to state pensions, private pensions, service pensions, as well as any additional amounts received by those who chose to delay retirement.

Meanwhile, other income earned by pensioners is no longer added to their pension for tax purposes. Instead, it is taxed on its own, with clear exemptions in place. Single pensioners will not pay tax on the first €12,000 of additional income, while married pensioners will benefit from a higher exemption of €15,000.

In practical terms, the impact is expected to be significant. Many pensioners could save up to €3,000 a year in tax, while the latest measure alone is set to leave around €25 million in the hands of approximately 16,000 elderly individuals. This reform is the result of a process that began in 2022, when the government started gradually increasing the portion of pension income that would not be taxed. Each year, a larger share was excluded until the system reached full implementation.